Microsoft Bails From Comcast

1/20/2009 11:45 AM Eastern

By: Mike Farrell

Software giant Microsoft Corp., sold its 7.3% interest in Comcast, according to a Securities and Exchange Commission filing after market close on Friday, selling more than 150 million shares of the cable operator's stock over the past 12 months.In a 13G filing (made by holders of 5% or more of the outstanding stock of a company) late Friday Jan. 16, Microsoft said that it didn't own any shares of Comcast. In contrast, in a 13G filing made Jan. 15, 2008, the software giant said it owned 150.9 million shares of Comcast stock, or about 7.3% of the MSO's outstanding shares.Comcast stock has been battered along with the rest of the market over the past year, although it has weathered the storm better than some. Shares of the nation's largest MSO were down about 7% in 2008, outperforming its peers, which were down a collective 22% in 2008.

The revelation that Microsoft has bailed out of Comcast stock probably is more of a psychological blow to the industry. The cable rally of the late 1990's was spurred by Microsoft's $1 billion investment in Comcast stock at the time. That investment validated cable in Wall Street's eyes and was the beginning of what has been a cordial relationship between the two companies.

But what had at first been a signal that the world's largest computer software company was making a big push into cable set-top boxes - its initial investment in Comcast required the MSO to buy 500,000 set-tops with Microsoft software - turned ot to be a bust.Comcast bought those set-tops by 2004, but reportedly left most of them to gather dust in a warehouse. And by 2007, Microsoft's position in Comcast's network had shrunk to a single market - Seattle. Later that year, Comcast pulled the plug on that market, replacing Microsoft's interactive programming guide with its own IPG. In a research note, Sanford Bernstein cable and satellite analyst Craig Moffett said that the Microsoft investment has become more of an overhang on the stock of late because investors anticipated that the software giant would eventually liquidate its holdings."Perhaps the best that can be said is that now the overhang is gone," Moffett said in a research note. "And so too is the fiction that Microsoft will inherit the TV."